9911796707
TMI Blog1987 (9) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... how agreements and to ascertain the amount of deduction to be granted on account technical know-how fee for the assessment year.1982-83. 2, Thereafter, the Income-tax Officer passed a fresh order giving effect to the appellate order of the CIT (Appeals), on 25-11-1985. In this order, the Income-tax Officer determined the total income of the assessee at Rs. 7,03,090. While passing this order, the Income-tax Officer held that the assessee was not entitled to any deduction on account of technical know-how fees payable to the two West German Collaborators DEMAG and Weyhausen in the present accounting year and that further, the payments made by the assessee were capital expenditure. 3. Aggrieved by this order, the assessee again filed an appeal objection to the disallowance of Rs. 8,12,095 by the Income-tax Officer. The assessee contended that this amount paid by it for acquisition of technical know-how two German Companies was admissible as a revenue expenditure. The expenditure so claimed by the assessee consisted of the following two amounts : (1) Amount paid to a West German DM 50,000 in West German & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; ------------ 4. After examining the appellant's contentions, the CIT (Appeals) accepted the assessee's claim for deduction of the sum of Rs. 1,85,724 to Demage, as admissible revenue expenditure in the year under appeals. However, in respect of the other amount of Rs. 6,26,371 payable to Weyhausen, the CIT (Appeals) held that on the facts of the case it was quite clear that it could not be allowed either on cash basis or on mercantile basis in the hands of the assessee in the present assessment year 1982-83. This point is dealt with the CIT (Appeals) in paragraphs 10 to 18 of his appeals order. In para 12, the CIT (Appeals) states that he requested the assessee to specifically let him know the basis for making the claim of DM 1,50,000 in the accounting year ended on 31-12-1981 and that the assessee replied that the production of wheel loaders started in the calendar year 1981 and that was why it made the claim in the present accountig y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calendar year to the year ending 30th June and therefore there would be no assessment for the assessment year 1983-84 at all. He also referred to the fact that the appellant-company got amalgamated with its holding company, called Marshall Sons & Co. (India) Ltd., whose head office is at Calcutta, and that the said amalgamation was effective from 1-1-1982. The CIT (Appeals) held that it would be significant to note that by the time the appellant made the remittance of DM 1,00,000 to Weyhausen in May 1982 (which the learned counsel says, should be March 1982), the assessee already got amalgamated with its holding company and that it was the holding company ( the amalgamators company) which really started the manufacture of wheel loaders. The CIT (Appeals) further held that it appeared to him that the assessee was quite anxious to get the deduction of DM 1,50,000 in its own assessment to avoid any uncertainty, but that whatever might be the motive of the assessee, on facts it was quite clear to him that this claim of DM 1,50,000 could not be allowed either on cash basis or on mercantile basis in the hands of the assessee in the present assessment year 1982-83. In this of the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He also relied on the two certificates one dated 17th June, 1986 issued by the Dy. General Manager (Works), and the other dated 18th June, 1986 issued by the Financial Controller of the appellant-company to show that the production of Hydraulic Front End Loaders had commenced in October, 1981 and that the value of Rs. 51,169 being the work-in-progress in respect of the same formed part of the total work-in-progress of Rs. 61,17,226 as per the balance-sheet as at 31st December, 1981. He also relied on the order received by the appellant from the Hindustan Construction Co. Ltd., Bombay dated 28th December, 1981 for the supply of one Marshall AR-61 Front End Loader, by the end of February 1982. The learned counsel, however, fairly stated that the appellant-company supplied this Front End Loader only in August 1982, as the necessary components ordered from Weyhausen in November 1981 were received only in April 1982. 7. Relying on the above materials, the learned counsel argued that in order to give effect to article 7 of the agreement, the date on which the liability arose would be the date of commencement of production and not any other date. The learned counsel challenged the find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and submitted that the appellant's claim for deduction in the year of appeal had been rightly negatived, as nothing had happened, much less the production of the article covered by this agreement had been completed during the year under appeal to entitle the appellant to claim this amount in this year. He pointed out that when the appellant paid the first instalment of DM 50,000 in September 1980, it was paid only as an advance and that the said payment was not in the year of account, but in the earlier year. He next submitted that the second instalment was the according to the agreement in February 1981 on the handing over of the complete set of manufacturing drawings, but on the facts found by the CIT (Appeals), the second and third instalments were paid together only in March 1982, which fell outside the accounting year under appeal. He further pointed out that the Director's report extracted by the CIT (Appeals) in paragraph 13 of his order only showed that some drawings had been released to the shop floor and that some orders were placed for the import of the components from materials from Weyhausen. The learned Senior Departmental Representative submitted that these acts wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try. This contract was entered into on 13th January, 1957. The assessee manufactured a proto-type wagon for the approval of the representative of the Government. On the approval of the wagon on 14th January, 1959 with certain rectifications, the assessee.was authorised to go in for production. The assessee thereafter manufactured the wagons and the first batch of six wagons was delivered on 14th August, 1959. The assessee's claim for relief under section 84 of the Income-tax Act, 1961, for 1964-65 was rejected by the departmental authorities in the view that the assessee had commenced manufacture in the calendar year 1958 relevant for the assessment year 1959-60, and that the relief would be available only up to the assessment year 1963-64, and hence no relief was admissible for 1964-65. The Appellate Tribunal, however, held that the assessee could not be said to have begun manufacturing or producing wagons in any commercial sense in the calendar year 1958, relevant for the assessment year 1959-60, and hence the assessee was entitled to the relief for the assessment year 1964-65 as well. On a reference to the High Court at the instance of the department, their Lordships of the Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 27-7-1978 relating to the payment reads as follows : "Article 7 - Payment. Down Payment. For the supply of the drawings and other documents by Weyhausen on the basis of the present agreement and for the conveyance of the technical know-how in connection with the contractual products, Marshall shall pay a lump sum of DM 1,50,000 in total which will be effected as follows : 1/3 DM 50,000 - to be transferred immediately after signature of this contract by both parties. Marshall shall not be entitled to the return of the sum if for any reason this agreement should be prematurely terminated. 1/3 DM 50,000 - to be transferred at handing over of a complete set of manufacturing drawings. Marshall shall not be entitled to the return of the sum if for any reason this agreement should be prematruely terminated. 1/3 DM 50,000 - to be transferred at commencement of production and assembly of the product latest 12 months after handing over of the set of manufacturing drawings. Marshall shall not be entitled to the return of the sum if for any reason this agreement should be prematurely terminated. Marshall is obliged to secure payment of this DM 50,000 by a corresponding bank guarantee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the articles contemplated are articles of finished products for whose manufacture and sale the new industrial undertaking has come into existence in the case of Southern Structurals Ltd. The same principle, in our view, would apply to the interpretation of this agreement entered into between the appellant-company and Weyhausen on 27-7-1978 as amended in 1979. Any other interpretation would lead to an absurd result and would be opposed to facts. In fact, the first AR-61 Front End Loader was manufactured by the appellant-company and supplied to its customer, Hindustan Construction Co. Ltd. only in August 1982, which falls in the next accounting year relevant for the assessment year 1983-84 and not in the year under appeal. The certificate of the Dy. General Manager (Works) shows that there was inspection of the Front End Loader manufactured by the assessee, by the technical representative of the foreign collaborators, i.e., Weyhausen and that the same was cleared for despatch only in August 1982. We have already referred to the fact that the components for the manufacture of this product were imported by the appellant from West Germany and that they were received in India by the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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